Mortgage interest rates change frequently and may be lower now than when you first financed your home. Refinancing your mortgage to a lower interest rate, or converting a variable rate to a fixed rate, can save you money each month freeing up funds to pay down other higher interest debt.

Before you begin setting up a plan to restructure your debt, there are a few things you should know.

What does it mean to refinance?

Refinancing refers to “the attainment of a new loan to take the place of an older one.” There are two different types of refinancing available:

  • Rate and Term Refinancing
    This option makes sense if interest rates have fallen by 1% or more since you signed your mortgage agreement. It also makes sense if your financial situation has changed and you would like to increase, decrease, or lock-in your loan terms.

  • Cash-out Refinancing
    This option makes sense if you are needing to free up cash for other purchases or to pay off higher-interest debt. In this instance, you are asking the Credit Union to replace your existing loan with a higher balance, hopefully with more favorable terms. You will receive a distribution in cash when you do a Cash-out Refinance.

Why would you refinance your home?

There are many reasons you might want to refinance your home:

  • Interest rates have fallen by 1% or more
  • Your financial situation has changed
  • You would like to pay off higher interest debt (i.e. credit cards)
  • You can now afford to reduce the number of years you are paying on your loan
  • To fund a large investment (i.e. starting your own business)
  • You would like to shift from an Adjustable Rate Mortgage (ARM) to a Fixed Rate Mortgage

Rate Forecast

In 2019, the Fed cut mortgage rates three times. The chance they do it again in 2020 is not likely, so it is best to take advantage of the low rates as soon as possible.  Mortgage experts are predicting rates to stay low through 2020, but keep in mind how unpredictable rates can be. The same experts that are predicting rates to stay low through the end of the year also predicted that rates would be in the 5s in 2019, but they bottomed out at 3.49%. This is why it is important to act now if you are planning on refinancing or buying a new home.

The information provided in this article is intended only to cover the basics and give you a little bit of insight into what it means to refinance your home, and why, someday, you may want or need to. If you think that refinancing your home might fit your needs, please call the ALLIANCE Home Loan Center at 806-776-0991 to set an appointment with one of our knowledgeable lenders.